Causal relationship between financial development and economic growth in Southeast Asia countries

Abstract

The thesis conducts research on the causal relationship between financial development and economic growth using unit root tests and table cointegration tests. The results of unit root test and table cointegration test will have two cases: if the variables stop and have cointegration relationship, then run the VECM model; if the variables stop and have no relationship, then runs the VAR model. A study with data from 9 Southeast Asian countries from 2013 to 2019 shows that the results of unit root tests and table cointegration tests are stationary variables and have no co-linked relationships, so that VAR model will be run in this case. The results of the Granger causality test show that there is only one-way causality due to economic growth leading to financial development. The research results of the impulse response function analysis show a two-way causal relationship between financial development and economic growth. The results of the variance decomposition analysis show that the economic growth variable makes the ratio of credit provided by banks to the private sector to GDP fluctuations rather than to the ratio of debt deposits of banks to GDP as same as ratio of debt liquidity to GDP fluctuations.